New leader of German Chancellor Angela Merkel's party elected

Annegret Kramp-Karrenbauer, an ally of German Chancellor Angela Merkel, has been elected as the new leader of Merkel's centre-right party.

Kramp-Karrenbauer narrowly defeated Friedrich Merz, a one-time Merkel rival, at a congress of the Christian Democratic Union in Hamburg overnight.

She won 517 votes to Merz's 482 in a run-off. A third candidate, Health Minister Jens Spahn, was eliminated in a first round of voting.

The 56-year-old Kramp-Karrenbauer has been the CDU's general secretary, in charge of day-to-day political strategy, since February.

She was previously a popular governor of western Saarland state.

She now inherits the task of improving the CDU's political fortunes and trying to win back voters from rivals to the right and left, while working with Merkel as chancellor until Germany's next election.

Before Kramp_karrenbauer's election, the party celebrated Merkel's 18 years as its leader with a lengthy standing ovation.

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Merkel announced in October she would give up the reins in her party, though she plans to remain chancellor until her current term ends in 2021.

However, it is possible that the next election could come earlier.

Merkel has been CDU leader since 2000 and chancellor since 2005. She moved her party relentlessly to the centre, dropping military conscription, accelerating Germany's exit from nuclear energy, introducing benefits encouraging fathers to look after their young children and allowing the introduction of gay marriage.

Most controversially, she allowed large numbers of asylum-seekers into Germany in 2015.

Merkel listed some of those moments and many more in a half-hour farewell speech as leader, telling delegates that "our CDU today is different from the year 2000, and that is a good thing."

She also celebrated Germany's balancing its budget in recent years and its response to the eurozone debt crisis.

For years, Merkel's popularity lifted the CDU and its Bavaria-only sister party, the Christian Social Union. In the 2013 election, they won 41.5 percent of the vote and only just fell short of an outright parliamentary majority.

At present, the centre-right bloc is polling around or below 30 percent. Merkel's fourth-term governing coalition with the centre-left Social Democrats has lurched through a series of crises since taking office in March, and the CDU has lost supporters both to the liberal Greens and the far-right Alternative for Germany.

Merkel, however, recalled that the CDU was in a deep crisis when she took over in 2000, mired in a party financing scandal surrounding ex-Chancellor Helmut Kohl.

"We are in demanding times today, no doubt about that," she said. "But ... we faced an hour of destiny for the Christian Democratic Union 18 years ago."

"We kept a cool head," she said. "We showed everyone."

Merkel appealed to the party to show unity, noting that arguments in recent years over migration have showed "where endless arguments lead."

"I wasn't born as chancellor or as party leader," she said. "I have always wanted to do my government and party jobs with dignity, and one day to leave them with dignity."

"Now it is time to open a new chapter," Merkel said. She was greeted by a several-minute standing ovation, with some delegates holding up "Thank you, boss!" placards.

Annegret Kramp-Karrenbauer waves at members of the Christian Democratic Union after her election as the new leader, next to German Chancellor and outgoing CDU leader Angela Merkel. (AAP)German Chancellor Angela Merkel embraces her newly-elected replacement as CDU leader, Annegret Kramp-Karrenbauer. (AAP)Annegret Kramp-Karrenbauer reacts as she is elected the new leader of Germany's CDU party. (AAP)German Chancellor Angela Merkel receives a standing ovation as she farewells her party leadership. (AAP)